Washington Insider--Monday

Trans-Pacific Partnership Deal Reached

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

TPP Negotiations: Deal Reached

Trade ministers for 12 nations, including the U.S. and Japan, reached agreement on some lingering differences relative to the proposed Trans-Pacific Partnership (TPP) early Monday morning. A final agreement includes 30 chapters, and all but two of those -- the ones that would include the terms of market access for dairy exports and intellectual property protections for pharmaceutical drugs/biologics -- were virtually completed this weekend.

Talks continued Sunday on the monopoly protection terms for biologics, a topic which apparently is linked to final dairy market access offers.

The talks also involve Australia, Canada, Mexico, Vietnam, Malaysia, Singapore, Brunei, New Zealand, Chile and Peru. Together, the 12 nations account for about two-fifths of global economic output.

Negotiations were extended Sunday with the goal of concluding the lengthy talks which have lasted nearly six years. Several of the TPP trade ministers were scheduled to leave Atlanta Saturday for the G20 meeting in Turkey. Negotiations on the trade agreement continued with the deputies of the ministers who had to leave.

For more information, see DTN Ag Policy Editor Chris Clayton's article "Negotiators Reach TPP Deal" in DTN Ag News.

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Taiwan Refusing to Lift Ban on US Pork Despite Complicating Recent TIFA Talks

Taiwan continues to insist its ban on certain pork imports from the U.S. remains in place as the two sides continue negotiations under the Trade and Investment Framework Agreement (TIFA).

At issue is racoptamine, a compound used in U.S. pork production to promote production of lean meat. Taiwan's Council of Agriculture (COA) has reiterated its opposition to importing pork that may contain traces of the compound, Focus Taiwan News Channel (FTNC) reported.

While some positive results were seen in the latest round of talks, Deputy U.S. Trade Representative Robert Holleyman told a news conference, co-hosted by Taiwan's Vice Minister of Economic Affairs Shih-chao Cho, more needed to be done on issues like the pork trade matter.

"In the area of agriculture, we particularly have more work to do to help ensure that Taiwan's food safety regulations are based on science and [are] consistent with international standards and Taiwan's prior trade commitments, including with respect to pork, beef, and other agricultural products," Holleyman said. "That's the conversation we had with every single one of our trading partners," Holleyman said. "The challenges around beef and pork (with Taiwan) do complicate the ongoing discussion about a bilateral investment agreement," Holleyman said.

However, Taiwan's Cho stated the pork trade issue was not on the agenda, a stance Taiwanese officials signaled last month. The U.S. brought it up during the discussion on regulations governing food safety and animal quarantine. "On the U.S. pork issue, we reiterated that our stand remains unchanged," Cho said.

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Washington Insider: Change in Ag Market Outlook

There are indications from many directions now of a change in outlook for agriculture -- away from the deep concerns about feeding the world's growing population to relatively new concerns about growth. For example, the Wall Street Journal noted recently that Monsanto's investors are expecting new information from the company about its plans for growth after the failure of its ambitious bid for rival Syngenta AG "amid a continued slump in the farm economy."

The Journal suggests Chief Executive Hugh Grant and his deputies will need to chart a [new] path for the world's top seller of crop seeds at a time when farmers around the world are squeezed by growing grain and oilseed supplies that are depressing crop prices.

In fact, sales growth for biotech seeds has slowed sharply in recent years, amid pushback against the technology from environmentalists and other groups. Monsanto, like Syngenta, DuPont Co. and other rivals, the Journal said, "faces gloom in U.S. farm fields," where expectations of another bountiful corn and soybean harvest this year have kept crop prices at low levels. Futures prices for corn have fallen to "approximately half their level three years ago," the Journal said.

While the Journal struggles with the outlook for Monsanto, Morris Dorosh, Agriweek, is willing to discuss more specifics. He said the recent build-up of world grain and oilseed stocks is not due to particularly good weather just now, but is an indication that the world's crop capacity has come to exceed its needs -- except during bad weather. A big reason is the former Soviet Union, now known as the Black Sea region, is rapidly developing its real agricultural potential.

He said that two decades ago, the ex-USSR bloc (including some minor countries not now considered part of the Black Sea area) produced 66 million metric tons of wheat and 69 mmt of coarse grains and exported 6 mmt and 7 mmt, respectively. This year, the projection is for wheat output of 117 mmt and coarse grains of 90 mmt. Export will be 43 mmt of wheat and 33 mmt of coarse grains, he thinks, and will go to all the important markets of the world including China.

Besides the increasing physical availability of crops for export, Dorosh sees the Black Sea countries in the best position to undercut world prices. Recent devaluations of the Russian ruble and Ukrainian hryvna raised proceeds to growers in local currencies while allowing cost of acquisition of export inventory in hard currencies to decline further.

As a result, Dorosh calls the Black Sea area currently the lowest-cost producer of cereals in the world. Land and other capital costs are low, especially for the large farming companies handed state farms after the communist implosion. Enough inputs, including fertilizer, some generic chemicals and farm equipment, are manufactured internally to benefit from devalued currency. Infrastructure is substandard and inefficient but cheap to use.

Not only that, but the highest-cost producers of staple crops, roughly speaking, in descending order, are the EU, the U.S., Canada, Australia and South Africa, he said, in spite of their "well developed agricultural technology." Their unit costs are still higher than the competition's for a variety of reasons "including the high cost of doing any kind of business in the advanced western world."

Dorosh concludes this gloomy appraisal by suggesting, "Like it or not, the future of crop agriculture in western countries depends on steady progress in technology to raise [yields] and lower unit production costs. He also hopes that "some grain importers, which are also high-cost producers, will start to drop out first and import more."

So, Dorosh is betting on both technology and economics, but there are other things to keep in mind. One is that the gloomy forecasts might lead technology providers like Monsanto and others to pull back their heavy investments. Another is that the U.S. government will be unable to agree how to support necessary infrastructure upgrades to make US exports more competitive.

Given U.S. historical experience, though, there is always the possibility the government might decide to intervene in markets to prevent "the economic shock of sector adjustments" to the changes in competitive position as it has in the past. So, there is quite a lot to be concerned about regarding U.S. agriculture these days. Given the fever pitch of election-year politics, producers should regard the possibility of even unlikely policy events well worth watching carefully, Washington Insider believes.


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(GH/SK)